If they'd innovated when they really were at the peak of photo sharing (2007 maybe), then they could have easily captured those markets. As it is, nothing about flickr has changed in 5 years. That's a generation in internet terms. I couldn't find an exact number, but any user of Facebook knows that they've had at least 3 or 4 major facelifts in that time, along with a number of smaller component changes.
Flickr had the market, but was killed by a lack of innovation. In the vein of many tech acquisitions, it was probably caused by politics.
It's a bit cynical, but as a Flickr user I'm somewhat happy that it's stayed the same over the past 5 years, because I'd give it a 90% chance that if Yahoo had initiated a major overhall, they would've screwed up something major that I liked/used.
Flickr had the market, but was killed by a lack of innovation. In the vein of many tech acquisitions, it was probably caused by politics.